Wednesday, October 30, 2019

Bubble
News

Stock Market Crash Near? Nobel Laureate Sees 'Bubbles Everywhere'

"I see bubbles everywhere," Shiller, economics professor at Yale University and author of just-published "Narrative Economics" told investors gathered in Los Angeles on Oct. 23. "There's no place to go. You just have to ride it out. You invest even though you expect the price to decline." Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.
 DYI:  DYI doesn’t agree that there is no place to hide.  My model account is heavy in short term bills and notes plus holdings in precious metals. 
Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 10/1/19

Active Allocation Bands (excluding cash) 0% to 50%
71% - Cash -Short Term Bond Index - VBIRX
29% -Gold- Global Capital Cycles Fund - VGPMX **
 0% -Lt. Bonds- Long Term Bond Index - VBLTX
 0% -Stocks- Total Stock Market Index - VTSAX
[See Disclaimer]
**Tocqueville Gold Fund TGLDX is a pure play 100% junior gold mining gold fund.  Vanguard's Global Capital Cycles Fund maintains 25% in precious metal equities the remainder are companies they believe will perform well during times of world wide stress or economic declines. 
Shiller sees bubbles in the stock market, bond market and the housing market. "You get ... in a situation where you know it's going to decline, but you still saved enough to hold you over; you have no choice."
Shiller, who won the Nobel Prize in economics in 2013, told Investor's Business Daily he expects just 4.4% average annual returns in U.S. stocks over the next 30 years. That's a disappointing return expectation — less than half the market's long-term return and well short of what pensions are calling for. The S&P 500's long-term return is 9.84%, says Index Fund Advisors. 
Shiller: The 'Bond Market Boom Is Unsustainable' 
Shiller is as nervous about bonds as he is about U.S. stocks. Bonds continue to be one of the hottest asset classes going as investors seek the safety of income. The SPDR Portfolio Aggregate Bond ETF (SPAB) delivered a stock-like total return this year of 8.31%. That's more than twice its average annual return of 3.7% over the past 10 years. Investors are pouring money into bond ETFs, hoping to hide from stock-market volatility and get at least some return.
Shiller On Housing Bubble: "It's Just Like 2005 Again" 
Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. "It's like 2005 again," Shiller said. "San Francisco and L.A. are already slowing down." That's a "bad indicator," he said, as those markets have been going up for years.
Yet, given the housing bubble isn't as "excited as it was" in the early 2000s, Shiller has been reluctant to publicly call it a bubble until now. And he thinks enough people remember the 2000's housing bubble so they recall "home prices really do fall." We're not "as exuberant now, so I'm not sure it's a repeat performance," he said.
DYI:  
The yield is whatever the Fed committee decides it is. There is very limited liquidity in the Treasury market, and no price discovery going on at all.

Yes, a decade ago Treasuries was the most liquid market on the planet (by a long shot). But that is no longer the case.

Credit card rates continue to go UP, not down.

Even though car loans are "free" (0% financing etc.) -- the financing is actually built into the price, even for used cars. When was the last time a car ad displayed the actual price of the car, instead of lease / financing terms?

At least 80% of new mortgages now are underwritten by the federal government (FNMA, FHLMC, GNMA).... the rates are set by politicians who are desperate to keep home prices elevated (capital gains taxes, property taxes, bank bailout costs, etc.).

We all joke about Government Motors no longer being a private entity except on paper.

Its time to acknowledge the US Treasury market is mostly the US government on both sides of trades.

In the end Mr. Market will have his way and the bubble will pop with prices dropping most likely over a two year period with the Fed’s fighting the decline all the way to the bottom.  Of course no one knows when this will begin.  So hang onto hats and your cash and precious metals better values are ahead. 
 DYI
    

 

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